It is a time-tested pattern. February has essentially returned to normal conditions, suggesting to me that we will see a substantial decline in housing starts.
It was impossible to maintain double-digit price inflation like we've seen the past few years.
I've been expecting the housing-production component of GDP to move from a strong growth engine to a neutral or negative element in the U.S. economy over the next year and a half.
My overall assessment of the housing sector is that we probably fundamentally topped out in the third quarter of 2005 in terms of home sales and housing production.
I do have this sort of weakening of the housing sector, but I think it should be thought of as a systematic cooling down process toward sustainable levels of activity and not viewed as kind of a classic housing downswing that's part of an economic cycle leading to a recession.
The numbers continue to look great. We're riding at an incredibly high level here.
Now what happens to the market depends on the interest rate structure. Long rates have been better than expected, but I think we can see them rising, moving into alignment with what's going on with the economy and with short-term rates.
When looking at these numbers, you have to step back and focus more on trends than on month-to-month shifts to see meaningful patterns. This government report traditionally has lots of month-to-month volatility and is subject to substantial revision.
We can't hold at the pace we had last year. It's not going to be the end of the world -- it's going to be a simmering down to a very healthy pace.
Some softening of long-term interest rates since early December helped buoy builder attitudes. Consumer confidence has rebounded nicely from post-Katrina lows.
